One of the major changes to conventional loan guidelines is that rental income, for an existing property, won't be used unless:
- The borrower has a two-year history of property management as evidenced by tax returns
- The borrower must have 30% equity in the "departing" property.
Why won't lenders allow rental income for loan qualification? Gina Benson from AMX Loans answers this question:
The investors are becoming increasingly strict on using departing rents. Wells, as an example, just came out with a new guideline that the borrower has to have 30% equity, plus a two year history of managing rental property as demonstrated by their most recent two years 1040's.
The strategic foreclosures have increased on the departing residences and the statistics are finally flowing back to the investors.
Our closed loan history shows that 50% of these types of loans the departing residence immediately go into default or listed for short sale within the first 30 days of closing on the new loan. Another 25% within the first 6 months.